By Yi Whan-woo

The Korean won is anticipated to keep bouncing back against the U.S. dollar and may rise to the low 1,200-won range per dollar, according to multiple analysts, Sunday, as U.S. inflation is cooling down and the hawkish Federal Reserve is on track to slow the pace of interest rate hikes.

The analysts forecast that China will get its economy back on track on after years of strict zero-COVID policies, which also raises hope for the Korean currency to get stronger against the greenback.

They noted China's return to normalcy campaign is already prompting a return of foreign investors to the financial markets in China's neighboring countries, including Korea, after they previously pulled out their money in search of safe-haven assets.

The outflow of foreign capital drove the depreciation of the Korean won in 2022. It weakened to a 13-year-low of more than 1,400 won per dollar in the fourth quarter of 2022.

The optimistic outlook on the won-dollar exchange rate came as the Korean currency climbed 4.5 won from the previous trading session and closed at 1,241.3 won per dollar, Friday.

Friday's close marked the highest level since May 31, 2022 at 1,237.2 won, when the Fed ended its near-zero rate policy and started accelerating its pace of credit tightening.

The Korean won rose to 1,234.5 per dollar at one point during intraday trading, Friday.

"Taking into account the won's recent strength compared to a couple of months earlier, I'd say it can go up to as high as 1,220 per dollar this year," said Ha Kun-hyung, an economist at Shinhan Investment Corp.

Park Sang-hyun, an analyst at Hi Investment & Securities, viewed that the won-dollar exchange may get to the 1,200-won range in the second quarter.

"The cycle of the Fed's rate hikes is anticipated to be over by the end of the first quarter of this year, while the Chinese economy is anticipated to be fully normalized in the second quarter," Park said. "Accordingly, the Korean won may rise to its highest level of the year by then."

Kim Seung-hyuk, an NH Futures analyst, the won-dollar exchange rate may reach the 1,200 range, under the condition that the U.S. Dollar Index (DXY) ― a measurement of the American currency compared to a basket of six major currencies ― falls below 100.

A psychologically-important level for the DXY is considered 110. It is under further pressure to fall from its seven-month low of 102.702, Jan. 9, after U.S. Bureau of Labor Statistics announced days later that the country's inflation decelerated for the sixth straight month in December at 6.5 percent.

Such deceleration shows that the Fed's aggressive rate hikes are working and that it is likely to moderate its hawkish rate policy. The U.S key interest rate was hiked to a range of 4.25 percent to 4.5 percent as of December ― the highest level in 15 years.

Meanwhile, the analysts said Korea should still look out for a global economic slowdown, which could worsen the trade-reliant Korean economy's current account balance.

Korea's current account balance turned red again after three months in November due to sluggish exports, with the country's shortfall amounting to $620 million.

"Any negative factors on investor sentiment could prompt the Korean won to weaken again," Kiwoom Securities analyst Kim Yoo-mi said.